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On Our Radar

Here’s Why Square Is Down 14% Today

What happened

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Payment processing company Square(NYSE: SQ) received an analyst downgrade, which sent the stock plunging. As of 2:30 p.m. on Monday, the day of the downgrade, Square had fallen by roughly 14%. Even after today's drop, Square is still up by more than 200% so far in 2017.

So what

In a nutshell, this was Square's first real negative news in some time. The company has handily beaten analysts' expectations for several quarters, is growing at impressive rates, and is doing a fantastic job of building a financial ecosystem for small businesses.

The latest upside catalyst was the announcement that Square was testing bitcoin in its Square Cash app, which many people feel could be a major revenue boost for Square and a big step toward mainstream acceptance for the digital currency. Unfortunately, that's exactly what the analyst who downgraded in the company cited in his notes.

Now what

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According to BTIG analyst Mark Palmer, Square's rally is "overdone," and tying the company's future success to bitcoin could potentially have a negative effect. Palmer said that "bitcoin could provide a marginal contribution to Square's revenues if the trial succeeds, it becomes a permanent feature for all Square Cash users, and the company starts to charge a fee for trades."

Square rallied by about 11% following the announcement of the Square Cash bitcoin test, so today's drop approximately erased those gains. And as I mentioned, Square has performed tremendously well thus far in 2017, so this could just be knee-jerk profit taking after the first hint of bad news the company has had in quite a while.

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